Category Archives: Investing Money

Trump is in the wrong place at the wrong time when it comes to the stock market

changeaheadroadsignMy Comments: It’s Monday, my day to talk about investments. Today, there will be two posts instead of one.

I think we’re in a bubble, and those don’t end well. From the tulip mania bubble several hundred years ago in Holland to the DotCom bubble in 1999-2000, a lot of people lost a lot of money.

If you aren’t already concerned about your exposure to the markets, you need to be. The downside threat far exceeds the upside potential.

Frank Chaparro / Feb 19, 2017

It looks like this bull market just won’t quit. Friday marked the 2,003 trading day since the stock market rally began back in 2009, making it even longer than the bull market that preceded the 1929 crash.

And since President Donald Trump’s surprise victory in November, stocks have been on a seemingly unstoppable upswing with the S&P 500 rallying nearly 10%.

The S&P 500, Dow Jones industrial average, and the Nasdaq all recently hit all-time highs at the same time for five straight days, making for the longest such streak in 25 years.

On top of that, stocks have not witnessed a 1% decrease since October 11. That is the longest streak since 2006.

As Trump noted in a tweet Thursday morning, consumer confidence has also improved. In January, consumer confidence soared to the highest level in over a decade.

And it’s not surprising that confidence is soaring when you consider the fact that a number of economic indicators are improving. The latest jobs report, for instance, exceeded forecasters expectations with 227,000 jobs added versus the predicted 180,000.

And that’s not all. Confidence also seems to have translated into higher retail sales. Retail sales picked up a 0.4% gain in January, which exceeded the 0.1% gain analysts expected.

But despite all of this data that suggests a strong and resolute economy and market, Michael Paulenoff, the president of Pattern Analytics, is still convinced a correction is on the horizon. He points to the current position of the Volatility Index and declining volumes as proof that our 415-weeklong rally is coming to an end.

“For decades volumes have preceded a rise in prices in the stock market. Likewise, declining volume leads to a decline in prices,” he said.

Paulenoff told Business Insider that the end of our current rally will put President Trump in the exact opposite situation as his predecessor.

President Obama presidency began a year after the stock market lost nearly 40% in the midst of the 2007-2008 financial crisis.

“When President Obama’s term as president started the markets were grossly undervalued,” he said.

“Obama just happened to be at the right place, right time — after a 50%-60% correction in the equity market amid historical fears about another depression,” Paulenoff added.

Trump, on the other hand, is not in the right place. “He is touting the upside in equity markets, for which he is not responsible,” Paulenoff said.”And it’s ironic because the coming correction is also not his fault, but people will likely attribute it to him.”

Opinion: This, not Donald Trump, is the true revolution upending stock-market investing

InvestMy Thoughts on This:

Hysteria on Wall Street! The Crash is Coming! No, It’s NOT!

It’s refreshing to see behind the news and find an insight that serves to explain what’s probably going on. These comments by Howard Gold are probably close to the truth. NOT FAKE NEWS!

Published: Feb 1, 2017 by Howard Gold

Stocks have made big gains since Election Day on the hope President Donald Trump and the Republican Congress would cut regulations and taxes and boost growth. They sold off Monday and Tuesday after the president imposed a temporary ban on visitors from seven Muslim-majority countries.

The ebbs and flows of Trump-related fear and euphoria fascinate Wall Street and the media—myself included—but they don’t matter much in the long run. Far more important, but getting almost no coverage, is a true revolution that’s upending investing—I think, for the better.

This sea change, which has developed over the last decade, consists of three big trends:
1. Investors have abandoned individual stocks for funds and exchange-traded funds (ETFs).
2. They have dumped actively managed mutual funds for index funds.
3. They have flocked to target-date funds as vehicle of choice for retirement saving and investing.

How revolutionary is this?

A generation ago, investors bought baskets of individual stocks, often on the advice of a stockbroker or relative, with little regard for how they worked together. This culminated in the internet bubble of the 1990s when people thought they were diversified by owning tech highfliers Dell, Sun Microsystems, Altera, and Novellus Systems, all of which suffered huge losses in the dot-com crash.

That and the emergence of ETFs in the 2000s prompted investors to dump individual stocks en masse. According to the Investment Company Institute, U.S. households’ net investment in individual stocks fell by an amazing $3.35 trillion from 2006 to 2015. During that same period their investment in mutual funds, annuities, closed-end funds, and ETFs rose by $3.62 trillion.

It’s unlikely all the money that came out of individual stocks went directly into equivalent funds, but the trend is clear: “…Investors are moving from directly owning individual stocks to owning stocks through mutual funds,” including ETFs, Sarah Holden, ICI’s senior director, retirement and investor research, told me in an interview. That’s why I think stock pickers are a dying breed.

It makes sense: When elite hedge funds run by the world’s supposedly smartest money managers trailed the S&P 500 index SPX, +0.30% for the eighth consecutive year in 2016, how can amateur stock pickers hope to beat the market consistently?

But active mutual-fund managers also have an abysmal track record. There’s overwhelming evidence very few of them beat index funds over the long haul: A 2016 study by S&P Dow Jones Indices found that over a 10-year period, more than 80% of actively managed funds trailed their benchmarks.

Cost is the main reason, Vanguard founder Jack Bogle has long argued. Actively managed funds’ average expense ratio was 0.84% last year, according to ICI, while index funds averaged 0.11%. Some of Vanguard’s broadest U.S. stock index funds charge as little as 0.05%—a full percentage point less than many active stock funds. That difference really compounds over the years.

So, index funds now comprise 40% of total U.S. equity fund assets, double their share a decade ago. From 2006 to 2016, $1.1 trillion flowed out of actively managed U.S. equity funds and about the same amount went into similar index funds, in what Morningstar called a “remarkable exodus.” Last year, the flow became a torrent as passive funds took in a record $504.8 billion.

That dovetails with our third big trend. According to ICI, three-quarters of all 401(k) plans offer target-date retirement funds (funds of funds that rebalance as shareholders get closer to their specified retirement date), and the number of those funds has increased 3½ times over the past decade. From 2006 to 2015, assets rose more than tenfold, to $762.5 billion.

The Pension Protection Act of 2006, which eased automatic enrollment in 401(k) plans, and a subsequent Labor Department ruling that allowed target-date funds (TDFs) to be “default” investments in those plans spurred their explosive growth. TDFs’ ease of use makes them especially attractive to millennials, who are gobbling them up.

“I make one decision,” explained Holden at ICI. “I go into the TDF appropriate for my date, and…there’s a whole lot of work done for me in terms of keeping me diversified and then also rebalancing as we move toward retirement.”

A lazy solution? Maybe, but it also shows investors know their limitations, which is very wise.

So, it looks like we’re at an inflection point where most investors will jump into broad market indexes using set-it-and-forget-it TDFs as their principal method for retirement investing.

That’s bad for fund managers, stock pickers, newsletter writers, and media outlets that specialize in stock selection. But it’s good for millions of Americans who just want to save and invest for a decent retirement. It’s a drive towards diversification, automatic investing and rebalancing and simplicity—and who can argue with that?

This, quite simply, is the future of investing. The revolution is happening right now.

Putting Clients Second

My Comments: Readers of my posts have seen me comment before on the proposed Department of Labor Fiduciary Rule that is scheduled to be implemented this coming April.

It’s directed toward anyone providing investment advice related to retirement accounts (with one major exception!). The rule says that anyone providing such advice must adhere to a fiduciary standard, similar to the fiduciary standards that apply to attorneys, doctors, and accountants, among others. Namely it must be in the clients’ best interest.

Now, in a manner consistent with so much that is emerging from the Trump White House, the DoL has been instructed to review and by inference, remove the new set of rules.

You may recognize the author below. He’s associated with the Vanguard Group, a company that manages over $3T (trillion) worldwide.

by John Bogle in the New York Times on Feb. 9, 2017

THE Trump administration recently announced that it intends to review, and presumably overturn, the Obama-era fiduciary duty rule that is scheduled to take effect in April. The administration’s case was articulated by Gary Cohn, the new director of the National Economic Council.

Mr. Cohn, most recently the president of Goldman Sachs, called it “a bad rule” and likened it to “putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.” Comparing healthy and unhealthy food to healthy and unhealthy investments is an interesting analogy.

The now-endangered fiduciary rule is based on a simple — and seemingly unarguable — principle: that in giving advice to clients with retirement funds, stockbrokers, registered investment advisers and insurance agents must act in the best interests of their clients. Honestly, it seems counterproductive to go to war against such a fundamental principle. It simply doesn’t seem like a good business practice for Wall Street to tell its client-investors, “We put your interests second, after our firm’s, but it’s close.”

The annulment of the government’s fiduciary rule would clearly be a setback for investors trying to prepare for retirement. But the fiduciary principle itself will live on, and even spread.

The truth is, the existing proposal doesn’t go nearly far enough. It is limited to retirement plan accounts and ignores the other three-quarters of the assets owned by individual investors. Any effective rule must encompass all investors.

It is widely agreed that the fiduciary rule would give impetus to the growing use of lower-cost, broadly diversified index funds (pioneered by Vanguard, the company I founded), such as those tracking, with remarkable precision, the S&P 500 stock index. But even without the rule, there has already been a tidal shift to index funds — actually, more like a tsunami. Since 2008, mutual fund investors have liquidated more than $800 billion of their holdings in actively managed equity mutual funds and purchased about $1.8 trillion of equity index funds. Low-cost index funds are almost certainly what Mr. Cohn means when he refers to the “healthy food on the menu.”

Several major brokerage firms have already embraced the fiduciary principle, announcing plans to comply with the rule by eliminating front-end commissions (known as loads) on retirement plan accounts in favor of an annual asset charge. And dozens of companies have reacted to the proposed rule by creating a class of generally less costly mutual fund shares with initial loads of 2.5 percent followed by annual charges of 0.25 percent of total assets.

I do not envision these responses to the fiduciary rule being reversed. With or without regulation by the federal government, the principle of “clients first” is here to stay.

In the debate about the fiduciary rule, one basic fact has been largely ignored. Investment wealth is created by our public corporations and reflected in stock prices. Stock market returns are then allocated between the financial industry (Wall Street) and shareholders (Main Street). So when the consulting firm A. T. Kearney projected that the fiduciary rule would result in as much as $20 billion in lost revenue for the industry by 2020, it meant that net investment returns for investors would increase by $20 billion.

By any definition, that’s a social good.

One must wonder how Wall Street, broadly defined, has been able to defy the interests of its millions of clients for so long. After all, 241 years ago, Adam Smith concluded that “consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.”

In other words, it is in Wall Street’s interest to promote the interests of its clients. As Smith put it: “The maxim is so perfectly self-evident that it would be absurd to attempt to prove it.”

Make no mistake. The demise of the fiduciary rule would be a step backward for our nation, allowing Wall Street to continue to profit by providing conflicted advice at the expense of working Americans saving for retirement.

But the principles of fiduciary duty are strengthening. Investor awareness grows with each passing day. The nation’s investors are already awakening to the role of low costs and broad diversification, and understand that long-term investing is a far more profitable strategy than short-term trading.

The fiduciary rule may fade away, but the fiduciary principle is eternal. The arc of investing is long, but it bends toward fiduciary duty.

Opinion: This Market Bubble is About to Burst

bear-market-bearMy Comments: Yesterday, I decided it was time to think about moving my clients out of cash and back into the markets. At least with some of their money. Now, once again, I’m not so sure.

If you are retired, or about to be retired, and have the ability to control the investments made inside your retirement accounts, it’s a time to be very cautious. Missing a little upside to protect yourself against a serious downside is, I think, a smart move.

Published: Feb 8, 2017 | Mark D. Cook | Moneywatch

The U.S. stock market at this level reflects a combination of great demand, great complacency, and great greed. Stocks are clearly in a bubble, and like all bubbles, this one is about to burst.

What do previous financial bubbles have in common with this one? There are many similarities, but one in particular is the real estate bubble of the mid-2000s that led to the 2008 global financial crisis. Then, extensive real estate buying overwhelmed supply. People were borrowing even more than 100% of the cost of the real estate, using creative means of financing never seen before in U. S. credit markets.

But debt is debt, which means it is a liability that someone is responsible to repay. That obligation was totally absent in the minds of borrowers and lenders alike — until demand dried up and reality hit.

How is this similar to the market now? The Federal Reserve has created an environment of low- to almost non-existent returns on bank saving accounts, and in the process it ruptured the savings mentality that had been a foundation of American society. People once could live within their means and make a habit of saving some of their income for retirement. They expected banks to pay a rate of interest to savers that was fair and consistent.

When this was no longer the case, people with savings chased returns in riskier areas including stocks, as well as not saving as much. Indeed, the saving generation has been forced into stocks, in which they do not have deep-seated faith. They will take the first opportunity to return to their savings ways again.

Three factors substantiate the view that this market is in a bubble. Each factor warns that stocks are in extremely overbought territory.

The first factor is the CCT indicator. This indicator is a proprietary internal measurement of the general volume of the New York Stock Exchange. The measurements take into account the institutional participation as a ratio of the overall volume. Also measured is the duration of heavy block buying in rallies.

The sum total of all the measurements now shows the lowest bullish energy ever — even lower than in 2008, just before the market crash.

The second factor is the sluggish VIX  (S&P Volatility Index) and the persistence of readings just above 10. These overbought readings indicate a pressure to return to higher levels, thus requiring downside volatility to neutralize the pressure. The longer this persists, the greater the downside pressure.

The third factor is a short-term daily indicator called the 1.5% one-day decline, which signals a pending environment change in chart patterns. The U.S. market has now gone three months without a 1.5% one-day decline. This is the longest period in the record-keeping history of this indicator — and a sign of imminent danger. Bubbles burst.

Have You Heard About The New Fiduciary Rule?

moneyMy Comments: This falls into a ‘did you know’ category. You’ll find an explanation of the term ‘fiduciary’ in paragraph four below.

Many of my followers are employed by universities and colleges, cities and counties, and other not-for-profit organizations across the country including churches. If this is you, then you may have money in a retirement plan sponsored by your employer, and it falls under IRS Code Section 403(b).

If you are employed in the private sector and have an employer sponsored retirement plan, then you fall under IRS Code Section 401(k). Or you might simply have an IRA account somewhere.

There is a new rule that will take effect on April 10, 2017, unless the Trump administration kills it, which they’ve said they will. The rule says that if I give you financial advice about your retirement money, that advice must be in YOUR best interest. I can’t just sell you something that is more or less suitable for someone your age; it has to be in your best interest.

A similar rule applies to doctors, attorneys, CPAs and architects, and has done so forever. The new rule says if I don’t act in your best interest, within the scope of an understanding of what exactly is in your best interest, I can be held accountable under the law and not be able to walk away saying “buyer beware”.

Here in Gainesville, Florida, there are tens of thousands of employees of the University of Florida, of Santa Fe College, of the City of Gainesville, of Alachua County and so on. If any of them participate in a sponsored plan, whomever is giving them advice is exempted from the new fiduciary rule.

That’s not to say that their advisor is not willing and able to be bound under a fiduciary standard, but it does say that neither they nor the firm they work for will be held accountable as a fiduciary if the new rule didn’t expressly exempt 403(b) accounts.

Buyer beware indeed.

By Mark P. Cussen, CFP®, CMFC, AFC | November 1, 2016

The Department of Labor’s (DOL) new rules that automatically elevate all financial advisors who work with retirement plans or accounts to the status of a fiduciary have already had a substantial impact on the retirement planning industry. Large firms are spending millions of dollars in their effort to restructure their business and compensation models to comply with these regulations. The goal of the new rule is to prevent advisors from recommending products that pay high commissions to them, but aren’t necessarily in the best interests of the client.

However, the new rules only apply to IRAs and qualified retirement plans in the private sector. They do not apply to 403(b) or other retirement plans that are used by non-profit entities that qualify as charities under Section 501(c)3 of the Internal Revenue Code. And this segment of the retirement planning market is considered one of the worst when it comes to plans that have high fees, poor investment choices and lax management by plan custodians.

The Need for Reform

403(b) plans in particular are common retirement plans for educators. Marcia Wagner, principal at The Wagner Law Group, told InvestmentNews in an interview, “It’s almost laissez-faire. The teachers can be marketed by people who are very good providers to the marketplace and people who aren’t, and it’s a problem.” Despite their similarity to qualified plans in terms of contribution limits and plan sponsorship, 403(b) plans do not fall under ERISA guidelines and are therefore not subject to the new requirements of the DOL rule.

Jania Stout, the practice leader and co-founder of the Fiduciary Plan Advisors group at HighTower Advisors echoed Wagner’s sentiments in an interview with InvestmentNews. “It’s kind of like the Wild, Wild West. Teachers are really at the mercy of whoever’s sitting in the cafeteria they’re walking into that day. It could be a good representative. Or they’re trying to put them in a product that’s two or three times more expensive.”

Other Exempt Plans

Private plans at higher educational institutions and some churches are also exempt from ERISA guidelines as well as state and federal defined contribution plans, such as the thrift savings plan. It is also possible to structure a plan that would normally fall under ERISA guidelines so that it becomes exempt, such as by prohibiting employer contributions. 457 plans are also immune from ERISA regulations. (See also, The Fiduciary Rule’s Impact: How It’s Already Being Felt.)

And some schools even set up their plans with an open type of arrangement where any vendor can offer investment options in their 403(b) plan as long as certain requirements are met. There are consequently some plans that have over a hundred different vendors offering investment alternatives to plan participants. Obviously, this level of diversity gives the plan participants thousands of investment options to choose from, which can be overwhelming for many participants who are not financially savvy. And many participants also have no idea how much they are paying in investment fees.

TIAA-CREF published a report in 2010 that revealed the average annual asset management fee for school retirement plans in the state of California was a whopping 211 basis points, while participants in Texas school plans were paying 171 basis points. Both of these states use the open-access approach with their plans. But participants in schools in states with controlled access paid much less. Plan participants in Iowa and Arizona only paid 87 and 80 basis points per year for each of those respective plans.

The Bottom Line

Although the sponsors of plans that fall outside of ERISA guidelines will not be legally required to meet the requirements of the DOL’s new fiduciary rules, they may feel pressure from their members or from the school districts to begin moving in that direction. Time will tell how the DOL fiduciary rule impacts these plans.

Coming Soon: The Worst Investing Returns In 30 Years

changeaheadroadsignMy Comments: I found this several months ago and found it again this morning. It’s still very relevant.

As someone who attempts to help people make the transition from working for money, to retirement when the goal is money working for you, a big challenge is dealing with expectations.

Many advisors have spent the last few years expecting the markets to crash, not like they did in 2008-09, but suffer a significant decline. It hasn’t happened yet, and some credible thinkers are saying it won’t happen until 2018 at the earliest. I have my doubts.

But regardless of the timing, if you plan to live another 20 – 30 years beyond the date you retire, you better pay attention to the underlying economic and demographic dynamics that will define how much money you can afford to spend.

Alexandra Mondalek / Updated: Apr 28, 2016

Sorry, Millennials: Despite your best efforts to be prudent savers and big banks’ attempts to reel you in, financial markets have other ideas for your retirement plans.

The next 20 years are bad news bears for investors, especially young adults who are just starting to craft their retirement savings plans, says a new report from the McKinsey Global Institute. A 30-year-old today may have a retirement savings vehicle like a 401k or an IRA, thinking that’ll sufficiently grow over the next 30-plus years to sustain their retirement.

The truth is, it won’t, says McKinsey.

The research finds that U.S. equities will yield average inflation-adjusted returns of 4-5%, compared to nearly 8% in the last 30 years. In fixed income markets, returns will fall 400 basis points, reaching no more than 1%—if that.

That wonky bunch of numbers carries tangible consequences for the average Joe and his portfolio: It’ll mean saving more for retirement, delaying retirement age, and reducing consumption during retirement.

“To make up for a 200 basis point difference in average returns, for instance, a 30-year-old would have to work seven years longer or almost double his saving rate” in order to retire with the same nest egg, says the study.

The report outlines the economic and corporate horizon and finds that, over the next two decades, both equity and fixed income returns will be much lower than investors have grown accustomed to in the last 30 years. While the study didn’t examine returns on real estate or alternative investments, that would hardly have changed the bottom line, says Susan Lund, one of the report’s co-authors.

In fact, the worse-case model’s projections—which suggest that the next 20 years of investing will be worse than the last century altogether—are so dismal that Lund says those who are starting to build a nest egg for retirement may want to reevaluate their saving strategy altogether.

“What’s written about more in the press are the big crashes, and people think they’ve weathered those storms,” Lund says. “This is more urgent. The past is better than you thought it was and the future will be worse than you think it’ll be.”

News of a “retirement crisis” is hardly, well, news. Aside from problems with Social Security, American saving habits have plateaued, with most people indicating they’ve saved less than $25,000 for retirement, according to the Employee Benefit Research Institute. The EBRI also finds that the vast majority of workers have yet to take the most basic retirement planning steps.

The takeaway from all this dour news? Retirement planning requires an aggressive approach. While plenty of people DIY their retirement savings, it helps to have a financial planner if you’re not sure how to get started. Of course, you may be on the hook for some fees, but thanks to new aims at holding planners to the fiduciary standard—that is, putting your best interests first—you may be better off in the long-run.

Ryan Fuchs, CFP at Ifrah Financial Services in Little Rock, Arkansas, says that while people may be scared by findings that they’ll have to work even longer than they can imagine, there are steps investors can take now to lessen their workload.

“The best way to approach this is to underestimate your returns. If your retirement portfolio budgets for 6% returns and you end up with 8% in returns, you’ll be fine,” Fuchs says.

“There’s a happy medium here. Instead of doubling your savings rate, increase it by one and a half times and work four more years, or whatever the math works out to be. The earlier you start planning, the smaller the changes should theoretically have to be.”

Maintain a Level Playground

money mazeMy Comments: This is about a soon to be imposed rule that applies to those of us who provide professional advice about the money you are accumulating for your retirement. It’s called the Department of Labor Fiduciary Standard rule and it’s long overdue.

As a financial planner, my role is to identify the existential threats you face in retirement and help you find solutions. For this I get paid from time to time. It might be instructive to understand the reason why I believe the rule is needed and ultimately expanded. With Trump now in the White House, there’s going to be shouting all up and down Wall Street to get rid of it.

Here’s some deep background. The greatest economic threats to the health and welfare of the world I leave to my grandchildren will come from income inequality or the disparity between the haves and the have-nots. I’ve written about this before and will again.

This income inequality is pervasive across the planet. I believe it’s the root cause of almost all conflicts between countries and their respective societies. If the disparity is great enough, economic incentive to succeed diminishes and society unravels. Why go on jihad and kill a bunch of infidels if you already have a good job, have plenty to eat and a home in which to raise your children?

Early last century, a political movement surfaced that we called communism. It arose in Russia and the Soviet Union and said ‘to each according to his needs’. It was a rejection of free enterprise and capitalism, which at the time said every individual has the ability to rise above others and have ‘more than what he needs’.

However, the intervening years proved that without an economic incentive, individuals rarely rise to any level, never mind enough to satisfy their needs. Without the ability to dream of success, people simply fail if there is no motivation to excel.

The other side of the argument says capitalism provides an unfettered ability to ‘succeed’, and at the extreme, allows total disregard for the aspirations and dreams of others playing the same economic game. Any barrier imposed by society to limit unfettered ability is deemed contemptible and must be removed.

But society, by definition, includes rules that we’ve come to accept as being in the best interest of society. We have no issue being required to drive on one side of the street, as opposed to whichever side we like on any given day. We have rules against stealing and causing bodily harm. These rules are accepted and no one argues against them. But suggest that bankers and stock-brokers be required to act in their clients best interest, with rules and regulations and penalties if you don’t and before you know it, the wailing starts.

A fiduciary standard says you are legally required to provide advice that is in your clients’ best interest. It’s not about denying some the opportunity to succeed any more than it’s about making sure none of us ‘has more than we need’. I should not be allowed to steal from you by giving you advice that is in my best interest and not your best interest. I may not ‘earn’ quite as much, but I will not suffer either.

This new rule is but one step on the playground of life that I hope will work to diminish the economic disparity I spoke about above. That effort has to start with a level playing field. It’s in the best interest of society and can happen within the context of a capitalist framework.

Theo Anderson | December 29, 2016

The income gap between the classes is growing at a startling rate in the United States. In 1980, the top 1 percent earned on average 27 times more than workers in the bottom 50 percent. Today, they earn 81 times more.

The widening gap is “due to a boom in capital income,” according to research by French economist Thomas Piketty. That means the rich are living off their wealth rather than investing it in businesses that create jobs, as Republican, supply-side economics predicts they would do.

Piketty played a pivotal role in pushing income inequality to the center of public discussions in 2013 with his book, “Capital in the Twenty-First Century.” In a new working paper, he and his co-authors report that the average national income per adult grew by 61 percent in the United States between 1980 and 2014. But only the highest earners benefited from that growth.

For those in the top 1 percent, income rose 205 percent. Meanwhile, the average pre-tax income of the bottom 50 percent of workers was basically unchanged, stagnating “at about $16,000 per adult after adjusting for inflation,” the paper reads.

It notes that this trend has important political consequences: “An economy that fails to deliver growth for half of its people for an entire generation is bound to generate discontent with the status quo and a rejection of establishment politics.”

But the authors also note that the trend is not inevitable or irreversible. In France, for example, the bottom 50 percent of pre-tax income grew by about the same rate — 32 percent — as the overall national income per adult from 1980 to 2014.

The difference? In the United States, “the stagnation of bottom 50 percent of incomes and the upsurge in the top 1 percent coincided with drastically reduced progressive taxation, widespread deregulation of industries and services, particularly the financial services industry, weakened unions and an eroding minimum wage,” the paper reads.

President-elect Donald Trump’s administration promises at least four years of policies that will expand the gap in earnings. But a few glimmers of hope are emerging at the local level.

The city council of Portland, Oregon, for example, recently approved a tax on public companies that pay executives more than 100 times the median pay of workers. The surtax will increase corporate income tax by 10 percent if executive pay is less than 250 times the median pay for workers, and by 25 percent if it’s 250 and over. The tax could potentially affect more than 500 companies and raise between $2.5 million and $3.5 million per year.

The council cited Piketty’s “Capital in the Twenty-First Century” in the ordinance creating the tax. Steve Novick, the city commissioner behind it, recently wrote that “the dramatic growth of inequality has been fueled by very high compensation of a few managers at big corporations, as illustrated by the fact that 60 to 70 percent of people in the top 0.1 percent of income in the United States are highly paid executives at large firms.”

Novick said that he liked the idea when he first heard about it because it’s “the closest thing I’d seen to a tax on inequality itself.” He also said that “extreme economic inequality is — next to global warming — the biggest problem we have in our society.”

Investing in children

There is also hopeful news in the educational realm. James Heckman, a Nobel Laureate in economics at the University of Chicago who has spent much of his career studying inequality and early childhood education, recently published a paper that lays out the results of a long-term study.

In “The Life-cycle Benefits of an Influential Early Childhood Program,” Heckman and others report that high-quality programs for children from birth to age 5 have long-term positive effects across a range of metrics, including health, IQ, participation in crime, quality of life and labor income.

Predictably, perhaps, the effects of the programs weren’t limited to children. High-quality early childhood education also allowed mothers “to enter the workforce and increase earnings while their children gained the foundational skills to make them more productive in the future workforce,” a summary of the paper reads.

“While the costs of comprehensive early childhood education are high, the rate of return of [high-quality programs] imply that these costs are good investments. Every dollar spent on high quality, birth-to-five programs for disadvantaged children delivers a 13 percent per annum return on investment.”

The research is important because early childhood education has bipartisan support. Over the summer, the Learning Policy Institute released a report that highlighted best practices from four states that have successful early childhood education programs. Two of them — Michigan and North Carolina — are swing states in national politics. The others are Washington and a solidly red state, West Virginia.

Although it isn’t a substitute for other policy tools to address inequality, like progressive taxes, early childhood education has strong bipartisan support because it produces measurable payoffs for both children and the economy. One study found, for example, that the economic benefit of closing the educational achievement gaps between children of different classes would be $70 billion each year.

Early childhood education fosters an “increasingly productive workforce that will boost economic growth, provide budgetary savings at the state and federal levels, and lead to reductions in future generations’ involvement with the criminal justice system,” the Economic Policy Institute recently noted. “These benefits will, of course, materialize only in coming decades when today’s children have grown up. But the research is clear that they will materialize — and when they do, they are permanent.”